ON THE SPOT
Small-cap sector is ‘among the cheapest equity in the world right now’
Investors are not taking advantage of a cheap market in a space that statistically outperforms and can offer material diversification, says AlphaWealth asset manager Keith McLachlan
Small cap investors have taken a thrashing over the past couple of years. But, argues AlphaWealth asset manager Keith McLachlan, the SA small-cap sector is among the cheapest equity in the world right now. Business Day asked him why the lack of liquidity in the market is even more of a reason to take a punt. There are fewer people trading shares (and) that has a direct impact on the valuation that is independent of the underlying business. So let’s call it the discount for illiquidity. In other words, if you are willing, on average, to buy any small cap in this market, its valuation is 18% lower than it should be, purely if we had normal liquidity at the stock exchange level. It must be so hard to sell the small caps story right now? When I look around all I see is cheap stocks, but to get anyone to invest in a small caps fund now is a big challenge, whereas when the market is booming and everything is expensive, guys are throwing money at you and there’s nothing you want to buy. Th...